Why Nigeria and US fail to make top 5 countries by e-payments volume in 2020 despite huge population

Despite having two of the world’s largest digital populations, Nigeria and the United States do not feature in the top 5 countries by real-time payments transactions in 2020.

According to ACI Worldwide and GlobalData research, India and China lead in e-payments volume globally, with 25.5 billion and 15.7 billion transactions respectively. South Korea (6 billion), Thailand (5.2 billion) and the United Kingdom (2.8 billion) complete the top five.

Nigeria ranks 6th, posting real-time payments volume of 1.91 billion in 2020, topping the 1.21 billion recorded by the United States in 9th.

However, Nigeria processed $382.2 billion in e-payments during the year, lower than that of the US, which was estimated at more than $1 trillion in 2020. Invariably, Nigerians are transacting lower amounts via online payments more frequently compared to the US.

So, why do Nigeria and United States trail countries such as South Korea and Thailand? It comes down to three core reasons – cashless policy, digital population and bank account penetration.

Cashless policy

The US isn’t seeing a great deal of growth in e-payments as cash remains the second most used form of payment in the country. Last year, many cities including Philadelphia, San Francisco, and New York passed bills that banned merchants from accepting only card and contactless payments. Such moves have incentivised cash transactions, despite the shift towards digital payments post-Covid-19.

However, while cash is king in Nigeria, accounting for 77% of payments in 2020 according to Statista, there are no laws or regulations mandating businesses to trade with hard currency. So, there’s more unhindered growth in online payments unlike in the US.

Nigeria’s e-payments activity has continued to grow due to an increase in cashless transactions via point-of-sale (POS) and online bank transfers.

In 2020, the volume of real-time payments in Nigeria grew by 77% to reach 2.3 billion transactions valued at over N158.1 trillion ($382.2 billion), according to Nigeria Interbank Settlement System (NIBSS).

Although a country like South Korea only has a digital population less than half that of Nigeria, it ranks much higher in e-payments volume as its legislation favours cashless payments. In fact, over 50% of South Korea’s 1,600 bank branches no longer accept cash deposits or withdrawals.

Digital Population

India and China, the world’s biggest countries by digital population, expectedly lead the rankings. India’s digital population stands at 688 million, while 989 million people in China are connected to the internet.

Also, the likes of South Korea (49 million) and the UK (65.3 million) have 96% of their population online. Hence, these countries witness much higher online payment activity compared to Nigeria and the US.

In the US and Nigeria, 80% (269.5 million) and 50% (104.4m) of the population have internet access. This means there are fewer people who are able to make online payments, especially mobile-based transactions.

Bank Account Penetration

The vast majority of e-payments gateways can only be leveraged by people who already have active bank accounts. Wallets opened by customers are usually funded directly from their traditional bank accounts. In Nigeria, the likes of Cowrywise and Paga function this way.

Bank account penetration is higher in countries like China (79%), India (80%), Uk (73%) – hence driving greater online payments and e-transactions compared to places as Nigeria (37%).

There are just about 40 million active bank accounts in Nigeria.

In contrast, the US has a very high bank account penetration rate of 94% (235 million), but this fails to translate into commensurate e-payments volume.

On the whole, the biggest driver of e-payments in countries seeing relatively higher volumes seems to come from the very top – the government’s stance on cashless payments.